Arco Signs Contract to Develop Big Chinese Offshore Gas Field
The Atlantic Richfield Co. and China’s state-owned oil company on Saturday signed the first contract for large-scale commercial development of energy reserves in the South China Sea.
Under the agreement, Los Angeles-based Arco and its financial partner, the Kuwait-owned Santa Fe Minerals (Asia) Inc., will sell natural gas from a tract near Hainan Island to a subsidiary of the China National Offshore Oil Corp. (CNOOC). Most of the gas will be moved by pipeline to the energy-starved city of Canton.
The deal is one of the largest in China since it opened its doors to foreign investment seven years ago. Arco officials estimate they will spend about $400 million to develop the gas and move it to Hainan Island. It will cost CNOOC an estimated $400 million to build a gas pipeline to the mainland.
Oil industry officials say that at current prices, the sale of the gas would produce about $5 billion over the 25-year period of the contract. Arco executives would not say at what price the gas will be sold.
“I’d say it’s a fair price. It’s probably at or near the world price. If anything, it’s a little on the low side,” Arco chairman Robert O. Anderson told reporters Saturday. Anderson said that the gas production and the accompanying pipelines would be “the biggest capital investment that’s ever been made for industry in China.”
The natural gas will be of considerable importance for the fast-developing region of China’s Guangdong province from Canton southeast to the border with Hong Kong. Some factories in the Canton area are reportedly working short hours because of power shortages.
Although more than 30 foreign companies have been exploring for oil, most have been unsuccessful. Oil company executives here say that their hopes for the South China Sea are much lower than they were three years ago.
“It’s pretty clear that there won’t be any billion-barrel fields developed,” one oil-company executive said recently.
One of the few finds so far has been Arco’s discovery in 1983 of a huge natural gas field 65 miles southwest of Hainan Island. But there is little world demand for gas, and Arco has been trying for two years to develop an outlet. Saturday’s agreement provides Arco with a commercial market for the gas. Production is to begin in 1989.
